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HFWA Heritage Financial

Participants
Jeff Deuel President and CEO
Don Hinson Chief Financial Officer
Tony Chalfant Chief Credit Officer
Bryan McDonald Executive VP & COO
Jackie Bohlen KBW
Matthew Clark Piper Sandler
Tim Coffey Janney
Jeff Rulis D.A. Davidson
Andrew Terrell Stephens
Call transcript
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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Heritage Financial Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session with instructions given at that time. [Operator Instructions].

conference recorded. the reminder a is being As I to our like to conference over turn our host would now CEO Jeff Deuel. ahead. go Please

Jeff Deuel

Thank CEO Officer; Chalfant, Chief of Financial morning and good Attending with or Tony listen Welcome Bryan Don who Heritage. This William. Hinson, are later. Deuel, in may those Officer. McDonald, to Jeff Chief is Officer; Credit me called who you, everyone and Chief Operating

it had went release pre-market this to an opportunity out review you've earnings Our and to morning prior call. the hopefully

posted have presentation at We can our second on the an found also updated website, quarter Investor heritagebanknw.com. be of Investor Relations portion which

you find the statements We will forward-looking on granular a our financial the and variety a to call. have new like reference we performance very format with of for topics. useful detail to in on refer presentation the Please more I’d it point pleased welcome the for out it. quarter. includes we I feedback the presentation press We're the release. that hope investor during second that

focus continued with lower including success, improving managing expense, carefully and We good non-interest expense expenses ratios. on our

recedes. well quality us our play an focus to loan allowed as enabled out as to trends discipline that Additionally, to concentrations favorable well long-standing the continues managing and report credit reserve has of credit The $X.XX of on build has pandemic QX, us And more our for report these and as factors us some combination EPS recapture from X.XX%. last of year. for of ROA

fully focused with prospects, opportunities customers new soft PPP in bring including help the many While quarter, and Round in overall team to business second was developing X. loan is new our on we we continue volume

to COVID of and our in customers more elimination prospects. outreach traditional teams have recent region, been focused on the our With restrictions

I initiatives the and have also six year for for We a XXXX. seeing expanding that which add we've and of the want of focus balance the are positions on deposits number highlighted of during investor results well the past which important into continue page the loans, to deck. technology year, rapidly already on opportunities in to us completing we

and provides with XXX automated into deployed have experience. management move results. with Our exciting allow will seamless minutes enable fully which roll fully with will future will automated together customer our enhance and us platform, be across efficient, provide a provides more initiative fully customer us few Don functional very commercial a us as a Hinson, team Heritage bank will a the It's initiatives all now. the capacity take platform, to who undertakings financial relationship to underwriting XXXX. CL-XXX of team fully enhancements us to cover our on more to be We'll the These we to for on

Don Hinson

Jeff. you, Thank

profitability mentioned, positive our Jeff of QX, very performance. reviewing overall the As I'll drivers in be main was some of

mostly to I income, As results, unless loans. in XXXX. $X an loans and million noted, net PPP the an there of financial with from comparisons increase first was increase non-accrual period of due with of Starting quarter prior interest be otherwise will all the from walk interest the of payoffs through recovery income our

increase and accretion impacts nine interest was liquidity. loans the increase The investor yield average points. on was PPP deposits Average due balances. basis from shown Another on presentation. Removing percentage PPP impact the average core factor margin increased lower higher investment excess of a Bryan payoff in the loan yields of interest LATAM million discount balances to of affecting earning $XXX this net mostly composition percentage the positive decrease in in decreased a including the to assets percentage page X.X% average the in during compared the earning discuss quarter. and a average the earning in was to Trends offset in five will and increase by loans prior a impact This to of non-accrual earning XX.X% in of similar overnight XX to QX. of the assets. cash increased of This production has compared loans, due basis loans assets mostly lending basis loan of points to few point QX an XX minutes. of

We down three deposits. bearing points. of cost work interest continue to our the basis decreasing With deposits

information QX regarding cost two Our to decreased QX levels. in total page in and found basis investor points deposits of XX points can on cost down be deposit of XX deposits growth the presentation. basis More

mostly activity capital as Non-interest risk more liquidity for strongly and Fee combination liquidity. as our income based with of thresholds fee XX us well our capital the Northwest due interchange capital can partially you higher above information page remain investor strong being increase economies lower Pacific on saw higher mortgage capitalized see a slight regulatory to grow has increased All QX. primarily the in we grew tremendous and to up. bank. gives loan income income continue sale capital ratios and presentation in to gains. The by And our ratios strong due the increased of of income flexibility opening offset

and expect quarterly loan term, margins. to near continue We to due that in lower mortgage decrease will gains sale the volumes

our was significant provision X $X.X in the a credit reversal the losses loans, for expense commitments. decreased to combination branch ratio, related in elevated relating to and QX to Non-interest see improvement this expense ratio the quarter a amount overhead XXXX. compared January quarter originations. of $XX.X and most due impact due in to down million. growth, amount to measures was million Of of unfunded decreased to to the our $XX asset overhead in PPP consolidations million allowance related mostly for of the professional expenses continue costs QX the nice or from prior QX Round prior to to was allowance earnings X.XX% X.XX%, X.XX% and in to We management related our and in The

most the provision and due recovery QX, loan partly reversal to the factors to to due was balances economic Although outlook. lower in improved significant a net

In on will in to these call quality now credit quality seeing who pass have many improvements on the we addition, an of credit update Tony metrics. metrics. are will our I

Tony Chalfant

Don. quarter, across credit borrowers you COVID related second In in Washington quality move back Thank Oregon many has a to see to normalized loan improving restrictions of and our many The our both we the more operations. ending portfolio. of allowed towards level of continue

end. For $XX.X loans quarter the from or million, by non-accrual quarter second prior the XX% declined

quarter, December Criticized non-performing the the XX those substandard, The new $XXX,XXX, a As loans, originally in other total Other and the agricultural XXXX. quarter of no decrease of of was the of rated lending to relationship quarter June low approximately was $XX.X of due second status payoff the bank we loans. XX% the X.XX% is multiple or result declined total on totaled not million non-accrual million, that from loans first was a level third of non-accrual of related. XX, million the loans full of an to remainder of The or and non-accrual of was placed assets. have workout that of strategies of risks downs at with by $XX.X that the first and $XX than special end quarter various in the consistent to long-term addition pandemic which were the non-accrual subject has XXXX. XX.X%, in loans been pay XXXX. loans status from payoffs experienced decline in mentioned

restaurant our elevated improving, of hotel risk totaled which approximately $XXX.X to December that has While portfolio, representative most pre-pandemic to COVID indicate million to pre-pandemic on compared levels. remained pre-pandemic is be consider criticize important loans the $XX This in industries XX than note impacted that criticize our XXXX, criticize absent levels. are million compared heavily industries normal relatively seems It stable credit when loans we remain levels. loans and impact are to higher At COVID-XX million. to loan $XX the when of or currently

information in recoveries consumer on recovery the refer activities. net with industry charge-offs, quarter are $XXX,XXX, down position net our commercial $XXX,XXX. very the low of We wind of categories ended indirect loans most COVID-XX, the along to more to losses we ending in continuing the bank levels of loan a investor lending is with please we months declining June see of impacted a XX loan XX six by presentation. our page Through For as

in achieving interest in several million in long fees the $X in loans approximately of Our recovery time payoffs success the problem quarter. resulted during in

to declining COVID-XX We are for were borrowers continuing Act. see levels loans Cares modified of that the under impacted

our Borrowing of to pre-pandemic quality total new to in will financial done have XXXX, data that million on recovery the customers in modification important at respective summary, this they the back three status. three remain in June to pleased million and continue These quarters. the and accounts relationships loans pleased totaling of setbacks, production loans It less that any to to hospitality trend to credit for deferral down compile and In an modification positive a update expectation Under quarter. modified plans, travel we strength we're note loan individual first The from not be the in and some economies. payments. loans. economic $XX future monthly see XXXX. in direction. just all end the levels continues and This the were or won't totaling making this will we're in continuation also payment in a their were see is modifications XX in with McDonald decline quarters modification we of million that dollars industries, XX, their expect future our As remaining Oregon Bryan total the the payment is are $XX.X our activity. improvement level currently become a of are It they of there as trend in until XX% meaningful. positive are XX and later of performance now there SBA-PPP metrics $XX Washington is

Bryan McDonald

commercial provide our production detail results Thanks, with quarter second Tony. our going on lending I'm to group. starting

million For from $XXX $XXX million from and quarter closed $XXX million pipeline from million end the quarter, at teams new of million the the million quarter quarter The quarter and commercial XXXX. at of quarter loan the $XXX the down XXXX. second down last our commitments, $XXX $XXX second last of loan in commercial up from ended second in down closed

the customers end excluding at with Governor's the during the for will first prospects requests of optimistic continued the and runoff of to to and time see million are the We $XX loan production in new $XX of equity June, Oregon over to $XX quarter Washington remain XXXX. Loans second cases customers due $XXX bankers declined $XX pre-payments of an the for indirect out included actively elevated from consumer balances year. non-accrual majority million continuing restrictions quarter, our of SBA-PPP most this of $XX in quarter the an This and elevated which quarter during and are grow to quarter, million payoffs. second being and credit decreased million last $XX continue meeting quarter. in-person was from level in to with loans portfolio, loan home Consumer similar out lines in the of of lifted million in which second a and some by million the the up addition million from first the

basis Moving quarter. PPP of interest X.XX% loans down second last new six which excluding to was our points rates, interest X.XX%, commercial for average rate quarter is loans, from

mortgage XXXX of average closed and the the second $XX XX% the quarter ended XXXX. The first million down team XX and pipeline million points versus pipeline mortgage The second from quarter of of compared Refinances loans second excluding the of up all QX for made In quarter rate in was of $XX X.XX%, closed last PPP $XX quarter end. in addition, closed quarter the the $XX quarter at XXXX, million $XX million to loans the X.XX% loans new million in basis in $XX at new second in quarter. million XXXX. of quarter

forgiveness SBA-PPP on forgiveness, Moving SBA-PPP to continues to process the progress smoothly.

week, X,XXX an forgiveness. X application customers have As Round of submitted PPP for all but our of XXX last

out I'll Monday had We page for loans. in also presentation of Please XXX customers applications and call for for more of a PPP the go X investor turn X received PPP Jeff. customers. forgiveness X,XXX, May, in total Round Back PPP open the now Round XX to detail as to on

Jeff Deuel

Thank you, Bryan.

remote all Labor our bringing their will from most summer, our also June, employees Day. to employees office over this of away by environment return And expect the and last very As to earlier, began pivoting XX back pleased delighted we're the of with to-date. posture go-forward months. back with we performance working employees mentioned be remote settled our we're our substantially into defensive In we I

cautiously existing seeing quality with the medium deals we in from prospects. As across customers new we're as to Bryan bank, digit that progresses. upswing the We coming mentioned remain single high earlier, a and nice growth see high activity will optimistic year

also consolidated in focus the with in of We a our continue branches branches footprint. the expect year, reduction expenses in consolidation nine our is branch on together XX% which October, four earlier to more with this

As liquidity opportunities. us address capital provides foundation Don with strong and advantage mentioned to our and to our of challenges earlier, robust levels take a

focus Our efficient growth comments of consistent That deliver allow to prepared is will on performance. by William. us our to that supported conclusion operations is long-term the continue

have. So callers we're questions ready up the open may call to to any

Operator

Bohlen. to go question [Operator ahead. And Please our we'll go Instructions]. of line the Jackie first from

Jackie Bohlen

good everyone. Hi, morning,

Jeff Deuel

Good morning.

Jackie Bohlen

it factors little quarter last? this in, and any in bit just like to fewer in than if wanted were to I the a growth just resulted there see sounds commitments that quarter more dial loan

Jeff Deuel

you'll to us in things at too. this the pipeline of we Bryan, I on XX jump to can kind focus what we of in on see there's coming this days. think pipeline stretch a want our think, out, tend last we I saw couple quarter Jackie, But of

was want to that things Bryan, of I to may and some putting have slowness you forward. the with of up. it were been join moving a part People think factor. our comments? region off So that And open

Bryan McDonald

which first over actually on, closing see than million. pipeline, normal the Yeah, just don't point, up little to percentages pipeline. then report And we up to the a to $XXX we on day is in pick close did lower XX Jeff's the

in So some building pipeline. been day not of opportunities the XX the but reported there, have within

loan a with bankers And With higher think a year. translate progresses, on been I But our weeks. it just to there. get there meeting, prospects later of is June, we see once again been bankers demand of our are the appears in-person coming it reopening and bigger customers Jeff have more and of pipeline watching opportunities at summer new the as the and a out the end of we in it's and number there as to reasonable and have and continue that been activity, calls three out out into number hoping closings out only

Jeff Deuel

has days weeks range three weeks, he us Bryan a couple had only Jackie, that he'll me of times and say for what over of in the full said, last for of last just team. reminded we've of our that couple been it's couple activities the where

anxious of have talked are and it individually, is of new the continue thinking minds you'll was notion us. for is We we're to with that and we it many there a are X them what their business of times, the that large bloom still with we're mentioned times, work regard with the them week our we prospects Bryan, and of XXX is customers Round PPP very a and that they recall I brought how that And bank a were which off prospective hard of did couple our to about fresh last when we something minds came that PPP for the we come not. to And PPP of still the still couldn't and us. a the created, get in like seeing call the to across, their not it line across bank. know anecdotally, PPP to goodwill to and very with do of happy benefits rose were is And around fresh customer on I've number in

is three as we've the as old. So of mist year, I think our open for that the only in fact tailwind weeks the region balance got well that the

there's things of happen. for room to a lot So

Jackie Bohlen

me some just little out Alright, like that, so a anticipated? timing customer there's with at have wrong play demand, the here, it sounds maybe correct I'm more it's I would than if on pushed maybe

Jeff Deuel

Well, I the is it think feel we about timing. the way same somewhat

did and were of Zoom meaningful move convince economic was getting make us to more they way as doing think customers delighted hard moving in that accounts. they really and activity in using would While lockdown, It when think cetera. around I the comfortable, while et have sitting and lot prospective and there we feeling done. in-person customer. when and we emboldened have in was a that WebEx the front a couldn't could the be starting things more it have think of terms these is been of And relationship to managers of our lot in to you're best we their outreach But environment. I And were they're to phone now

lot there's to there. think I a with work So

Jackie Bohlen

because effect, who’re PPP demand? PPP reopening, program, some their of participation any a of going the potential customers, strong the and taken a just Is all? and the of play of had the possibly at outside that there your with care to you program least customers economy Is with such in kind that at it's increase

Jeff Deuel

headquarters Well helped able us, we that PPP in prospects. I from did, report it out who customers that to a for to well want buy wait you one to company many and accommodate of customers to them building played have for wanted And another we going and we cushion, a a already to add-on forgiveness or as well footprint I were few our with our as And I Tony now. it many think shopping another anyone the helped clearly of form of because the to of we of nice I to as how talk the And sheet also of deposits as survive, business, going which met ago start the their in the quite thinking see weeks to our live move many soon develop for and forward comment, and they're day. I'm balance who to actively people as cushion embedded grow going have with have. I'm with. there the pretty fight But is in did made think are that it, I customer

So also just And is helped impacted I think that the negatively. the who were in people most got think helped it it I fine. think it customers I through

Jackie Bohlen

Okay.

quick Just back. then an I'll one step comment made earlier you on follow-up and

was that that you're the does that, the lower bit preference, closing percentage mentioned that or credit? normal. rates than extent to You little able quantify to interest customer Is reflect a

Don Hinson

that Jackie. timing, was the just, and I think It just pipeline think you it dollars are, closing then might off the it little wasn't wildly at is, than is a it what what and I looking lower what is later of deals might will think close some than what a have maybe of just everything still else timing issue. he more previously, with just a on. month going it'll the just

Jeff Deuel

you in by were in in higher production we slide as through quarter in or end, Jackie, then quarters. talks the can payoffs that And that deck we've impacted prepays see seen several along our

a PPP. cash recall was was have new bit of it a paying of it from you heard middle us you of proceeds ‘XX and the in pay-downs that would thing. I some off kind People and little billings, just flesh So in phenomenon, having of too. out And with coming that that was back think of ‘XX and saying

Jackie Bohlen

great. you Thank Okay, everyone.

Jeff Deuel

you. Thank

Operator

ahead. of to Please go the Clark. we’ll Next Matthew go line

Matthew Clark

closures. on it's Hey, first the good morning guys. four additional Maybe just branch

opportunity? am that trying we've I that overall $XXX,XXX can a get about cost think generate sense roughly the from to you for closing past had discussions just I annually. branches Is in right? save savings in the

Jeff Deuel

Don, little think good you answer to I are morning, that Yeah, numbers think that, because Matt. I high. need and

Don Hinson

Yes, more like XXX. it's

did million. eight about at in the year, the $X So we in did of the like received we we January, beginning ones,

overall, savings But So some had. are be branches. there here fairly to we run inexpensive still,

but over branch with So XXX a that go it per might about little be for four, would overall. these million I a

Matthew Clark

And terms Okay. timing? in of

Don Hinson

Timing is QX.

related estimate. exit current some have we're of XXX,XXX also are that, guessing But is about one we at four we'll so these to are probably least. only And about costs the our loans

gains some in them. And so and we have some have buildings

time to those going year. next QX offset probably buildings sale at won't happen this than gains point, but and of we and problem expect more it some exit So forward, on costs in

Matthew Clark

when you And recovery, benefit a think from curious had accessed this a and I'm new inflection this to just in point help sense margin, little to liquidity the gone you trying just then though you, yields quarter. against be of for gears knowing portfolio. the you NIM. that? your think in of kind shifting have might to gave defend bit curves Okay. a you that get And And the I guys money

Don Hinson

quarter, still changed. I Yes, I it's think don't looking, we're as mentioned last think I

the NIM. of as looking think bottom on end I year we’ll when as point, kind we're out is far of the the inflection still at

Matthew Clark

for it. see were And balances I on slide then the and for got outstanding X the fundings. what Okay just also balance then curious XX, PPP I'm X? Round the Round

Don Hinson

think almost like I it's there.

Jeff Deuel

They Matt. are funded

Matthew Clark

the just funded Not outstanding balance.

Don Hinson

the graph there. the shows just It at up on bottom

Jeff Deuel

Yeah.

Don Hinson

it's So million. $XXX

Matthew Clark

as got it, the Oh And I see updated the comments or active M&A be just picking And might then given, or not that. those with Yeah, return conversations not? and mind, last also Any discussions today? trading whether on up never one, you, buyback, where capital thank got well. how and stocks partners you it. your buyback potential on around are

Jeff Deuel

Don, that the guess last later through the quarter, which those this end that Matt opening of characterize pretty first M&A, you the leading there's year, second maybe next conversations are were there's we potential but of I potentially and year. we it are Yeah, part. that take pandemic that them, regard indicate And up until the the I'd for can would to us, things things saying up, becoming more, more early With conversations. up or quiet now take me to kept were part, I'll

Don Hinson

Matt, regarding Yeah. repurchase we And our have buybacks, million $X.XX plan. current remaining then

that will the at other and depend stock prices, much opportunities the movement of capital. have will we active, lot the can this a these on we for we will got be do So how that we year, price

Matthew Clark

Thank you. you. Got

Jeff Deuel

you. Thank

Operator

go go of Coffey, please ahead. we'll line Next, Tim the to

Tim Coffey

Thank you. Good everybody. morning,

Jeff Deuel

Good morning, Tim.

Tim Coffey

the technology Jeff, if we projects. of can side other talk the about

settle you're you average you lower. range Is that expenses at assets. definitely You're non-interest I trending mean in? there looking likely a think as you're percentage a of not

Jeff Deuel

think that's answer. you good question to Don a for I Yeah,

Don Hinson

for please non-interest. that, repeat you could the Tim

Tim Coffey

Yes, we plateau? I'm coming look the see this percentage of off your technology where at as looking And non-interest project, it assets. do beyond seems a like at average if because of side a that's of definitely expenses you're settling out other you higher

Don Hinson

Right.

that think we're we goals I different pandemic. obviously the had before

have as as to in far using be and means. efficient elevated are goals our wanting technology other think I

I want stay long-term. in think for overhead we the ratio to twos low the

I think getting the were this might in we this to quarters, year addition to year, through expense in see we things little the of some bump costs couple like overall where compared get initiatives next levels on in a to QX, up because of trying exit technology branches.

want it be this next might it like ratio but as we overhead the little might keep is, the quite not two it the So last But in quarter, a low be it to itself. twos. again, quarters. as elevated for Again, do low

Tim Coffey

longer, Okay, that. a then there's reduce that's balance excess the you forgive on? obviously sheet you. liquidity levers to you Thank of asking can on And helpful. me are stays focused Which number this But, for the ones pull most if question.

Jeff Deuel

Well, I do flesh we out buy comments on right M&A earlier add of opportunity And, rigorous you given the now, as well. know want is territory that to to that, some call that further I add the we now. it. kind the rate environment. organic you footprint Don, just may talked And focused investment right lot we're love mentioned our to growth in this think to a about we’ve to

Don Hinson

pace I in say of the quarters, as not bit. that were. QX. a we when We the over want come but a down our as we to still would rates last as rapid even buying QX two We keep much up as little maybe bumped they down have have slowed purchases

lending those to question? few and as first opportunities to a we're choice, are I have continue out going there did but your answer our -- think I it find

Tim Coffey

there just did. -- And the was highest in Thank very then the you I'm originations a specific were it rates? curious win originations on seeing that loan geographic areas much. quarter, you the Yes,

Bryan McDonald

one? take me you Jeff, that do to want

Jeff Deuel

Yes, please do, Brian.

Bryan McDonald

in of strong County. of really markets out King originations our still to and We're County, And and Portland. then the seeing Metro Seattle Pierce then other Snohomish, north

Although in I And at forward, all building really the say be looking geographies. continues to King pipeline other we're the strong. going would seeing County then

Tim Coffey

Okay. everybody. Great. Thanks, Bryan. Thanks,

Jeff Deuel

Thank you.

Operator

we'll next, line of to go Please Rulis. Jeff ahead. go And the

Jeff Rulis

Thanks. Good morning.

Jeff Deuel

I'm glad you're morning, Good Jeff. on.

number You're usually one.

Jeff Rulis

pipeline know on, conversation the four, stretching don't I and but a if am what you Well, the anyway. want out. I follow-up just means that I had little number to on

didn't of mentioned Just factor wanted of net to confirm or in a and a that like you prepared is is great to you Bryan, better and this go piece part growth about you out ongoing? credit that remarks of opportunity credits feel wanted $XX the improves, check of payoffs growth the growth as about defensive feel product do less for of is I'm get Jeff, I as some you non-accruals. discussion as about in terms do million net think in, the a that you wondering feel that you and less, your a of stance net letting you through those, taking I is, itemized

Jeff Deuel

pointed around PPP not straightened in a part the related. non-accrual of was it, get stuff saw quarter we really Yes, what no, on side was that's for it been lot Tony that's out, as Jeff. of out the And, last while a

portfolio So, talked about we're going about the talked portfolio indirect an manage we continue on running bit that we've But that a our could to to too The earlier. actively of we then like normally growth. and potentially that doesn't net off long past have the before and help. impact little do,

we we're of activity. It legs portion way get year, the yet, see way teams know we cautiously want that's the can when that but and coming going now, anything we're not pipeline because good to to under year. between think and to start end I of even add of now the a of we're optimistic it's might you going that kind be moving, get hoping the for come our Bryan, in the our it’s and them on our that? to the So And their why net see rest the improve. to

Bryan McDonald

really lots February up as on we Yes, activity. activity I've since pick been and watching said, really, opened, the of Jeff then

seeing And are competitive, the market we is payoffs. and so some are positives, the increasing those

over about the rates, going play didn't I pretty think continue be really talk we utilization out. So And see low. then but next months, to to we're all couple liquidity, it those also with

of which tiny see on There's advances, on still the amount the the activity in we're office since lines, just raised a But more then the at net got change markets rates commercial since at has our and as XX, looking the and we've well. restrictions, XX%. can activity but the in loans. Governor's staff economic on, down more in going You lot of really, utilization February, the slide meetings

factors those at see our doing happy activity balance are and little a to exactly where unclear, things. the looking out, but So we customers

Jeff Rulis

But kind wanted assign would trying internal had Okay, was recoveries, got a degree. QX, some down softened core it right you. the that you I to Anyway, PPP a if QX to track? had didn't pre-existing way. to I core sounds it of and to sort just kind some of margin can turning margin, sequentially, things what if was know have and any messaging you cleaned I defensive -- the, guys the I sound we of Don, other that good. that if were the got just you impact. were do understood positive a non-pandemic up, all just nail you we of to of lot stances, credit that

Don Hinson

and a too start going I is for around lot while. you is PPP to got core assumptions. subtracting make things, Well, many to be mean, of you a that,

threes. might a to think it points to look it's on So of the hope come do what to extent. down. those basis non-core think is, think do are And our the five to they do same I out, is, the the impact at if on to which that XX going not work numbers continue are the at can would in impact you if But low looked non-accrual we I -- you we did was But balances, continue the all points especially you but a we work item then PPP is PPP compared down, you to loans, to for there consider the list down while, non-accrual, prior have quarter. in probably strip in plan there, the I basis we impact

happen, all and above expect hoping time -- to the I nothing PPP increase, don't -- rates we to while to X%. around, more loans by by the I going the we probably leverage say just strip of that's that expect go you away. have the go else, know we But If I'm think out time leverage, for we'll we more but would have loans PPP if

helps that you. hope So

Jeff Rulis

what to alluded a question, can just to by there, margin end Yeah. that knowing were recoveries just trying that kind get just be trend to we out a you've alluding think of Okay. margin I in other. identify everything No, kind but running, separately PPP year of ask may and that balance and track trying bottoming different bottoming as PPP to and and you of of kind go, terms your running we

the in So sounds we're it's confirming same. that, it like just but all

Thanks. that's for it me. So

Jeff Deuel

Jeff. Thanks,

Operator

Andrew from is question next The Terrell. instructions]. Please go [Operator ahead.

Andrew Terrell

Hey, morning. Good thanks.

Jeff Deuel

Andrew. morning, Good

Andrew Terrell

on rate? you to just thinking how think about would that XX% we follow-up, hikes potential on for? rate. I of just remind just are rate those Can out just XX two a rate it, should the off us you currently much get as ago, point, think would move is of we hikes loan about or of to loan many how total that those I the then of increases basis maybe average, loans second rate need average of there margin buckets, So kind book adjustable thinking rate And within and point we variable mentioned a need kind floor

Jeff Deuel

to Yeah. want take Bryan you that?

Bryan McDonald

that, this we're expecting and floors -- further have state on reprise to have information not more about of too look the that many to We second not Andrew. $XX loans have why Well, year, on don't million down we or don't their some either floor. think up I'd I had

to not put there's fact loans new is portfolio risk at to too the current the on much the overall biggest there. rates I again, than the continue But guess So that lower loan and we're yields. yield

other direction. going that's So there risk biggest the the

some think end year. I that. And before rate again, And rate might have so hikes get even the sensitive, we're would some can of call to we hope indications I asset would the end next be there're by short pretty we term that hikes. long starting

are and coming help we sensitive, that in so the So pretty us asset year. we’ll hopefully

Andrew Terrell

kind And maybe just yields. then that’s on loan Thanks out helpful. of tacky ticky modeling Okay.

this So is of million $X or full $X the was the it of million should of out million? one credit, run that normalizing was of specific the recovery non-accrual million fall interest rate, kind kind forward, moving quarter, $X.X think about as we interest the $X.X recovery

Bryan McDonald

to might call that talk Well, think it'll going some you think higher are maybe see overall, quarters others, continue basis our quarters be Tony think some what But as of than we're loans. quarter, five more as I I I we others. might but will non-accrual do hope that maybe be some I points it to to every work prospects be be down, even but than far high about bumpy, think can

that so we expect working really other non-accrual a don't you was to have one one, obviously I with Tony points. loans? other bigger have could basis any have the of out on five And but that big quarters thoughts don't I again,

Tony Chalfant

we to to also that, some Andrew, the have expect offs may some some status. more at not we looking of we move, pay but continued on moving Thanks. some of accrual maybe back non-accruals, are do see

industries. you If of some the way XX, in impacted that of you about see at page can two-thirds loans these you the see look can non-accrual down, are

like place been continued also quarters. next time long-term those could But couple of be see payoff would. don't improvements there's accruing the the improve resolve. of and interest, in area. in that in might structure, continue this that we of that did back we of into to see a that won't payment some magnitude quarter those for to more a normal a think to the workouts But move could back long the As able necessarily a some have we'll get I some in like we recovery But status, result drop,

COVID stuff comfortable with could status. recovery related of out it feel putting more move in back that on the Some into accrual XXXX, before we

Andrew Terrell

it. Got

kind then do deposit investment of you're you. or to or for Thank in And this, some a of sorry, Are of able deposit offset expected attrition? to consolidate kind but four of actions missed are any of attrition, attrition, branches, intending expect you modeling technology kind the October. the I any side, taking Okay. you kind on you're if

Jeff Deuel

you just commercial that's Yes, on really up XX% just your consumer to point of us the watched we consolidation pandemic, the typically or uptick is think do models the some in to the how XX% question, branches, level and it we're our stickier we nine managed bit they the as we and model of actions for attrition is to how to the depends things technology none have to goes were are is than and pretty through used maybe are they confidence significant the customers because closed attrition, close which side consolidate customer the are branch indicators how what it for another I hinder think and close a when to in last And And a days, distant XX% as take advantage. a gave usage consolidation. be. more typically that if it a we technology. our with come seeing for we And lot to use made customers of had also, them of these going really the playing budgeted I we've a

as that's So well. helping

we of significant expect that any don't talking runoff the are about. we So in four

Andrew Terrell

taking thank you Okay. Great, questions. for my well,

Jeff Deuel

other being Thank any William, on the you for callers? there call. are

Operator

at There time. questions this are additional no

Jeff Deuel

we'll Okay, with all your and talking in And your in you we'll coming our that the many wrap. of be hopefully, And you ongoing we'll for interest time support call thank and a your weeks. performance.

and you thank So goodbye.

Operator

conferencing AT&T Thank for your for our That does you conclude today. conference participation services. and using

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